creating a general banking system for the State. This called for 25 new banks, at least one of which was to be established in each of the 23 Congressional districts.* The total capital of these 25 banks was to be $9,525,000, of which 1 per cent. interest was to be paid each year to the State. The governor vetoed the bill in March of 1813, but at the next session of the legislature another bill was passed establishing 41 new banks, with $17,000,000 capital.† Again he vetoed the bill, but this time it was passed over his veto, and in 1814 37 of these banks commenced business.t

When it became known that a new charter would be refused to the Bank of the United States, some New York capitalists purchased all the stock they could buy, and in 1812 applied to the legislature for a charter, naming the new institution, with a capital of $6,000,000, the Bank of America. For a grant of a charter running 30 years, the bank would pay $400,000 in four annual and equal payments; another $100,000 would be given the State, if during the next ten years no rival banks were chartered to conduct business in New York City; and a further $100,000, if rivals were kept from doing business for 20 years. The capitalists offered the State $1,000,000

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at 5 per cent. to be used in building the Erie Canal, and $1,000,000 at 6 per cent. to be loaned by the State to farmers on landed security. The Assembly passed a bill confirming the grant and it was about to be voted upon in the Senate when the governor prorogued the legislature for 55 days because attempts had been made to bribe some of the members and therefore, before the bill passed, it would be well to examine and refute the charges. Little good resulted from this action, for when the legislature convened, the Senate passed the bill. Upon favorable action by the Council of Revision, it became law.*

The same state of affairs existed in the majority of the other States. In Massachusetts the charters of 16 of the existing banks would expire in October of 1812, and it was thought that these banks might be placed by one large institution, but the mania for local banks held the people and 20 banks were founded in 1812. Six local banks were established in New Jersey, three in Delaware, and three in Ohio. In Virginia a futile attempt was made to add $1,500,000 to the capital of one of the two banks in existence. During these two years the number of banks had been raised from 88 to 208; and as all had the right to issue bills, the country once again launched upon a paper-money era. Unfortunately none of the banks could secure specie enough to redeem a small portion of their paper, as much

* McMaster, pp. 289–290.

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of the specie was at that moment in New England, owing to the fact that its manufacturers were then supplying the domestic market with many articles which had previously been purchased from England, and thus received in payment from the other States a great amount of the specie. Again, owing to the blockade during the war, the New England ports afforded the only outlet for Southern products, as a result of which there was a large balance due the New England States by the South, which was paid in specie, thereby, stripping the Southern banks of every available dollar of specie. So great had been the drain on the Southern banks that the specie in the Boston banks grew inside of two years (1812-1814) from about $800,000 to more than $7,000,000.*

On January 10, 1814, a petition was sent to Congress by several capitalists of New York requesting permission to incorporate a National bank, with $30,000,000 capital, the bank in turn to loan the Government $15,000,000.† The House Committee of Ways and Means reported that, under the Constitution, a bank within the limits of the States could not be chartered without the consent of the States, whereupon on February 4, 1814, Calhoun moved that an inquiry be instituted into the expediency of establishing a National bank in the District of

# Adams, United States, vol. ix., p. 97.

† American State Papers, Finance, vol. ii., p. 663.

Columbia.* Shortly afterward the bill was presented, read, and committed, but the matter was allowed to drop until Felix Grundy, of Tennessee, asked that a special committee make inquiry into the expediency of founding a bank. This committee was appointed, but remained inactive and was discharged just before the session ended. Hence action on the measure was postponed indefinitely.† By this time and especially toward the close of August of 1814, when the British captured Washington - the people began to lose faith in the banks and to withdraw their money. The people in the South became panic-stricken first and began to withdraw what coin they had deposited. The banks south of Baltimore ceased to redeem their notes, forced the Baltimore banks to do likewise and finally, on August 28, unable to stand the strain, the Philadelphia banks suspended payments.

The banks of New York, Albany and other cities attempted to hold out for some time, but when news arrived from Baltimore of the suspension, matters wore a different aspect, and though the merchants and industrial boards resolved to aid the banks in every way possible, there was not a single bank in any of the seaboard States that did not suspend the payment of specie within a short time. The Government was the chief sufferer, because much of its money was

* Jenkins, Life of Calhoun, p. 81. McMaster, vol. iv., pp. 292–293.

deposited in the Southern banks and not a dollar of specie could be moved to the frontier to pay the troops, army creditors, etc. The Secretary of the Treasury then ordered the revenue collectors not to receive Treasury notes in payment of taxes or dues when the amount of the note exceeded the sum due. On the other hand, he said that, owing to the suspension of specie payment, the Government would be unable to pay in specie, but must pay its creditors in Treasury notes, unless they desired to wait until such time as the Secretary had specie with which to pay them. A few of the creditors took these notes, but on the first day of January, 1815, the Treasurer defaulted in the payment of the dividends on the funded debt due in Boston, failed to pay off two temporary loans of $250,000 each made by the State bank at Boston, and also defaulted in the payment of $2,800,000 of Treasury notes due in other places. Soon the dearth of coin in the East began to affect the Western banks, for immediately upon suspension of specie payment in the East efforts were made to secure from the West what little specie the Western banks contained, the result being that early in 1815 several banks in Ohio were forced to suspend specie payment. The people suffered as well as the banks and the Treasury Department, for there was not a single coin to be had, particularly in the larger cities,

* Babcock, Rise of American Nationality, pp.

219-220.

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As it

where the banks were located. was unlawful to issue bills less than a dollar in value, the place of silver was supplied by an illegal issue of small paper bills. In their corporate capacities, several cities also printed large amounts of notes, one cent, two cents, and six cents in value, which were sold in lots amounting to $5 or $10 to those who needed change, with the guarantee that they would be redeemed in bank bills and would be received in payment of taxes. New York City alone issued $190,000 in these small notes. The banks followed suit, but, as they could not legally issue these in their own names, they induced some merchant of wellknown integrity to sign the bills for them. In this manner and before the spring of 1815 the seaboard States south of New England were flooded with paper money of this character.*

Upon the conclusion of the war, foreign trade began to revive and the evils of this paper currency became greater. greater. The prices of all varieties of commodities at once declined, and among them specie, the premium of which inside of a few days had dropped from 14 to 3 per cent. This seemed to presage the resumption of specie payment, but these fond hopes were not realized, for the revival of trade necessitated still greater sums of money; and, while the banks made the loans necessary, they could not redeem the paper in specie, and finally

* McMaster, vol. iv., pp. 296-298.

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gave up all attempts to do so. This aroused the people and a bill was introduced in the New York Assembly laying a tax of 14 per cent. on all bank notes not redeemable in coin after January 1, 1816, but the banks of New York met this resolution in such a way that all further action was stopped. As a consequence of the refusal of the banks to resume specie payment, their notes began to depreciate, the notes of the Delaware banks being taken at 2 per cent. discount, of the Baltimore banks at 3 per cent., of the chartered banks of Richmond at the same rate, and of the Ohio and Pennsylvania banks at 7 per cent. The Northern banks were more fortunate, however, the notes of the Jersey banks being sold in Philadelphia at par; the bank bills of New York at 4 per cent. premium, and those of Boston at 9 per cent. So greatly did the Government suffer for want of a circulating medium that in June of 1815 the Secretary of the Treasury gave notice that on and after August 1, the collectors of customs would not receive the notes of such banks as did not pay specie and would refuse to take and pay out Treasury notes at par in payment of custom house duties.* This attempt to force the resumption of specie payment compelled a number of banks whose depositors conducted a large custom house business to yield, but many of the most important banks refused to

*American State Papers, Finance, vol. iii., p. 29.

comply with the request, and on August 15 a new circular was issued giving notice that after October 1, 1815, the notes of such banks as refused to comply with the previous circular would no longer be received in payment of duties or taxes due the United States.* This notice had the desired effect, and before November several of the banks which had failed to acceed to the demand in July, complied. † The people also were beginning to grow weary of the refusal to resume specie payment, and in numerous places resolutions were passed not to accept any change bills other than those issued by the city corporations, or any bank notes which did not pass current at the city banks.‡ The Virginia legislature then took the matter under consideration, and passed a law requiring every bank in the State to resume payment by November 15, 1816, under severe penalty for failure to comply. The banks therefore began to call in loans, stopped discounting, and badly deranged business. Another law passed at this time provided that in all cases where attempts were made to collect money due, as on a mortgage, not an article could be sold unless the creditor should, ten days before the sale, signify his willingness to take such notes of the chartered banks of Virginia, of the neighboring States and

* Niles' Register, vol. viii., p. 439, where a list of the banks is given.

Ibid, vol. ix., p. 151.
McMaster, vol. iv., p. 302.